Gurgaon Sohna Highway Private Limited: Ratings Reaffirmed

July 27, 2020

Gurgaon Sohna Highway Private Limited: Ratings reaffirmed

Summary of rating action Previous Rated Amount Current Rated Amount Instrument* Rating Action (Rs. crore) (Rs. crore) Fund-based - Term Loan 287.86 287.86 [ICRA]A(CE) (Stable); reaffirmed Non-fund Based Limits (83.33) (83.33) [ICRA]A1(CE); reaffirmed [ICRA]A(CE) (Stable)/A1(CE); Unallocated Limits 7.14 7.14 reaffirmed Total 295.00 295.00 * Instrument details mentioned in Annexure-1 # interchangeable with term loan

Rating Without Explicit Credit [ICRA]A- Enhancement

Note: The (CE) suffix mentioned alongside the rating symbol indicates that the rated instrument/facility is backed by some form of explicit credit enhancement. This rating is specific to the rated instrument/facility, its terms and its structure and does not represent ICRA’s opinion on the general credit quality of the entity concerned. The last row in the table above also captures ICRA’s opinion on the rating without factoring in the explicit credit enhancement

Rationale

ICRA has taken a consolidated view of H.G. Infra Engineering Limited (HGIEL) as well as its special purpose vehicles (SPVs) incorporated to carry out road construction projects, wherein HGIEL has extended unconditional and irrevocable corporate guarantees towards their debt obligations. The above rating considers the strength of the corporate guarantee provided by HGIEL, the parent of Gurgaon Sohna Highway Private Limited (GSHPL), for the bank line facilities of GSHPL. The Stable outlook on this rating reflects ICRA’s outlook on the rating of the guarantor, HGIEL.

Adequacy of credit enhancement The guarantee is legally enforceable, irrevocable, unconditional and covers the entire amount and tenor of the rated instrument. Given these attributes, the guarantee provided by HGIEL is adequately strong to result in an enhancement in the rating of the said instrument to [ICRA]A(CE) against the rating of [ICRA]A- without explicit credit enhancement. In case the rating of the guarantor undergoes a change in future, the same would reflect in the rating of the aforesaid instrument as well.

Salient covenants related to the credit enhancement, as specified in the terms of the transaction » The guarantee is unconditional, irrevocable and absolute.

» The guarantee is continuing and shall remain in full force and effect until the Guarantee Discharge Date, which is the date until the Guarantor discharges the Guaranteed Obligations, to the satisfaction of the Lender in terms of the Guarantee Deed.

» The Guarantor guarantees the due payments by the Borrower of the secured obligations of principal, interest, commission, prepayment premium, expenses and other charges to the senior lenders.

» In the event of any default, the guarantor shall forthwith on first demand by the security trustee, without demur, presentment, protest or other notice of any kind, discharge the obligation in the manner stated by the security trustee.

Key rating drivers

Credit strengths

Strong profile of the sponsor – HGIEL, the sponsor of GSHPL, has a well-established execution track record in the civil construction industry, which benefits the company.

Benefits accruing from HAM – The project, being executed under HAM, would be supported by benefits inherent under HAM such as upfront availability of RoW, inflation-linked revisions to bid project cost during the construction period and the relatively lower risk of equity mobilisation with 40% of the project cost to be funded by grants from the authority during the construction period. The project will have a stable revenue stream in the form of annuity that would be received post-commissioning (equivalent to 60% of the project cost) over the term of the concession period from the National Highway Authority of India (NHAI), a Central Government entity.

Established track record of HGIEL in road construction – GSHPL has entered into a fixed-price engineering, procurement and construction (EPC) contract with HGIEL, which has multiple decades of experience and an established track record of timely execution of projects within the budgeted cost, especially in the road construction segment.

Corporate guarantee from sponsor – HGIEL has provided an unconditional and irrevocable corporate guarantee for the bank facilities of GSHPL.

Credit challenges

Project exposed to execution risk and moderate funding risk – The project is vulnerable to moderate execution risks, since ~60% of the project is completed as of June 2020 and the progress remains as per schedule. Moreover, GSHPL is a project with relatively low complexity, where the implementation risk is mitigated to an extent by a fixed-price, fixed- time contract and HGIEL’s strong project execution capabilities. Further, the debt has been tied up and GSHPL has availed debt of Rs. 136.5 crore. HGIEL has already infused equity of Rs. 52.5 crore out of the total requirement of Rs. 72 crore, resulting in moderate funding risk.

Project returns exposed to changes in inflation and interest rate risk – GSHPL’s cash flows remain exposed to the interest rate risk due to the floating nature of interest rates for the project term loan. In an event of persistently low rates of inflation, the interest payments on annuity might be lower than expected.

Proper maintenance of lanes essential for receipt of annuity payments – GSHPL’s source of income includes the annuity, interest on outstanding annuities and annual O&M payments from the authority concerned. Hence, ensuring proper maintenance of roads, along with zero deduction in annuity receipts, will be the key credit sensitivity for the company.

Liquidity position: Adequate The liquidity position of GSHPL is driven by the liquidity position of its guarantor, HGIEL. Further, at the project level, liquidity is expected to remain adequate, as the company has achieved financial closure and half of the total equity commitment is to be brought in upfront prior to debt drawdown. Hence, it would have access to funds in the form of 2

equity as well as a sanctioned term loan. The liquidity is further expected to be supported by mobilisation advances and grant from the NHAI.

Rating sensitivities The rating assigned to the bank lines of GSHPL will remain sensitive to any movement in the rating or outlook of the guarantor, HGIEL. Analytical approach

Analytical Approach Comments Corporate Credit Rating Methodology Applicable Rating Methodologies Approach for rating debt instruments backed by third-party explicit support Parent: H.G. Infra Engineering Ltd Parent/Group Support The assigned rating is based on the unconditional, irrevocable corporate guarantee extended by GSHPL’s parent company, HGIEL. For arriving at the rating, ICRA has consolidated the financials of the various Consolidation / Standalone Group entities of HGIEL (as mentioned in Annexure-2) given the close business, financial and managerial linkages among the entities.

About the company GSHPL, a special purpose vehicle (SPV), is a wholly-owned subsidiary of HGIEL. The company entered into a 17.5-year concession agreement (including two and half years of construction period) on April 19, 2018 with the NHAI. It intends to expand the existing national highway (NH) 248A by 12.5 kilometre and widen the same by six-laning, through a private public partnership (PPP) on hybrid annuity mode. The project’s construction started in January 2019.

The bid project cost and the total project cost for the project is Rs. 603 crore, which is to be funded by equity of Rs. 72 crore, term loan of Rs. 287.86 crore and NHAI grant of Rs. 240 crore.

Key financial indicators (audited) - Standalone FY2019 FY2020 Operating Income (Rs. crore) 27 330 PAT (Rs. crore) 1.0 3.2 OPBDIT/ OI (%) 5.0% 3.5% RoCE (%) - 10.9%

Total Debt/ TNW (times) 0.04 2.4 Total Debt/ OPBDIT (times) 0.6 11.6 Interest Coverage (times) - 1.7

About the guarantor

H.G. Infra Engineering Limited was incorporated in 2003 by Mr. Hodal Singh Choudhary, Mr. Girish Pal Choudhary, Mr. Vijendra Singh Choudhary and Mr. Harendra Singh Choudhary in Jodhpur, Rajasthan. It is primarily involved in infrastructure development and construction of roads and highways across Rajasthan, Uttar Pradesh, Haryana, Maharashtra and Goa. Over the last few years, it diversified into the construction of water distribution projects. In FY2018, the company successfully concluded its IPO of equity shares. HGIEL is accredited with AA class status by the

Public Works Department (PWD) of Government of Rajasthan (GOR) and is registered as SS class contractor in Military Engineers Services (MES).

For detailed rating rationale on H.G. Infra Engineering Ltd, please click here

Key financial indicators (audited) - Standalone FY2019 FY2020 Operating Income (Rs. crore) 2,010 2,196 PAT (Rs. crore) 124 166 OPBDIT/ OI (%) 15.1% 15.6% RoCE (%) 24.5% 25.5%

Total Debt/ TNW (times) 0.6 0.4 Total Debt/ OPBDIT (times) 1.3 1.1 Interest Coverage (times) 6.2 6.5

Status of non-cooperation with previous CRA: Not applicable

Any other information: None

Rating history for last three years

Chronology of Rating History for the past 3 Current Rating (FY2021) years Date & Date & Amount Date &Rating Rating in Rating in Date & Rating Rated Amount (FY2021) FY2020 FY2019 in FY2018 (Rs. Outstanding June 18, Instrument Type crore) (Rs. crore) July 27, 2020 2019 - - Long [ICRA]A (CE) [ICRA]A (CE) - - 1 Term Loan 287.86 136.5 Term (Stable) (Stable) Non-fund [ICRA]A1 (CE) [ICRA]A1 - - Short 2 Based (83.33) - (CE) Term Limits* Long [ICRA]A (CE) [ICRA]A (CE) Unallocated Term/ (Stable)/ (Stable)/A1 3 7.14 - Limits Short [ICRA]A1(CE) Term * interchangeable with term loan

Complexity level of the rated instrument ICRA has classified various instruments based on their complexity as "Simple", "Complex" and "Highly Complex". The classification of instruments according to their complexity levels is available on the website www.icra.in

Annexure-1: Instrument details Date of Amount Issuance / Coupon Maturity Rated Current Rating and ISIN No Instrument Name Sanction Rate Date (Rs. crore) Outlook NA Term Loan FY2019 - FY2035 287.86 [ICRA]A(CE)(Stable) NA Bank Guarantee - - - (83.33) [ICRA]A1(CE) Unallocated [ICRA]A(CE)(Stable)/ NA - - - 7.14 Limits [ICRA]A1(CE) Source: GSHPL

Annexure-2: List of entities considered for consolidated analysis Ownership Company Name Consolidation Approach by HGIEL H.G. Infra Engineering Ltd - Parent Company of GSHPL Gurgaon Sohna Highway Private Limited 100.00% Full Consolidation H.G. Ateli Narnaul Highway Private Limited 100.00% Full Consolidation HGIEPL - Colossal JV 70.00% Full Consolidation HGIEPL - Ranjit JV 30.00% Full Consolidation HGIEPL - MGCPL JV 30.00% Full Consolidation HGIEPL - RPS JV 51.00% Full Consolidation TPL - HGIEPL JV 26.00% Equity Method Source: GSHPL

ANALYST CONTACTS K. Ravichandran Ankit Patel +91 44 4596 4301 +91 79 4027 1509 [email protected] [email protected]

Ravish Mehta +91 79 4027 1522 [email protected]

RELATIONSHIP CONTACT Jayanta Chatterjee +91 80 4332 6401 [email protected]

MEDIA AND PUBLIC RELATIONS CONTACT

Ms. Naznin Prodhani Tel: +91 124 4545 860 [email protected]

Helpline for business queries:

+91-9354738909 (open Monday to Friday, from 9:30 am to 6 pm) [email protected]

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Today, ICRA and its subsidiaries together form the ICRA Group of Companies (Group ICRA). ICRA is a Public Limited Company, with its shares listed on the Bombay Stock Exchange and the National Stock Exchange. The international Credit Rating Agency Moody’s Investors Service is ICRA’s largest shareholder.

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